Taxpayers who have been tardy in submitting their income tax returns by the annually appointed due date set by the South African Revenue Service (Sars) will be familiar with the R300 penalty imposed for late submission upon on your assessment.
This used to increment at R300 a time, with each successive late submission, to a maximum penalty of R1 800. Sars evidently viewed this penalty as a relatively light slap on the knuckles, however, it has recently seen fit to publish a set of regulations to the Income Tax Act which may render a taxpayer’s procrastination in submitting his or her annual income tax return extremely expensive.
With effect from January 1 2009, Sars has introduced a severe system of penalties for failure to comply with various duties imposed by the Income Tax Act, including the failure to submit a tax return by its due date.
The amount of the penalty will be determined on a sliding scale, with reference to the taxable income of the preceding year, as set out in the fixed amount penalty table published in the regulations.
The penalty could vary from R250 up to a maximum of R16 000 and may be imposed on a cumulative basis for each successive month that the non-compliance fails to be rectified.
Once imposed for the first time, the penalty may be triggered for persistent non-compliance, for up to an additional 35 months (or 47 months, should Sars be unable deliver the penalty assessment due to a failure to advise Sars of a current address).
A monthly penalty of R250 will apply for the non-submission of returns where a taxpayer has an assessed loss, or up to R250 000 of taxable income. If you earn between R500 000 and R1-million of taxable income, you would be in for a R1 000 monthly penalty. Any entity having in excess of R50-million taxable income in the year would be subject to the maximum penalty of R16 000 per month.
A taxpayer, for example, a company, which is assessed for the R16 000 penalty, and then fails to rectify the incidence of non-compliance, and which has also, in the worst-case scenario, failed to notify Sars of its current registered address, would find itself owing a hefty penalty of R768 000 after 48 months, in addition to any income tax liability that it may have owed in the first instance.
Listed companies, and companies whose annual gross receipts or accruals exceed R500-million, will be liable for a penalty of at least R8 000 per month for tax non-compliance. Any company which is part of the same group of such companies will also be liable for this minimum penalty.
You may have more than just your current income tax return outstanding. You may well be wondering just how these penalties could apply to returns which are technically already in arrears.
There will be a grace period until April 1 2009. Thereafter, should the return still be outstanding, the fixed penalty may be imposed, and for every month thereafter, up to 35 months (or 47 months, in the absence of a current contact address), until such time as the outstanding tax return is submitted.
When will the fixed amount penalty be imposed?
The new penalties will be used to enforce not only income tax compliance, but also provisional tax, employees’ tax, VAT, donations and capital gains tax compliance. The following circumstances will warrant a penalty assessment:
* Failure to register as a taxpayer;
* Failure to inform Sars of a change of address;
* Failure by a company to appoint a public officer, or place for the service of notices, or of changes to these;
* Failure to submit a return;
* Failure to make available information upon request;
* Failure to provide replies or answers to questions;
* Failure to attend or give evidence when required to;
* Failure of a provisional taxpayer to submit an estimate of taxable income;
* Any other non-compliance where an obligation is imposed by the Act.
These penalties will also affect employers in respect of the following contraventions:
* Failure by an employer to notify Sars of a change of address, or of cessation to be an employer;
* Failure to submit a monthly declaration of employees’ tax;
* Failure to provide details of an employee;
* Failure to deliver an employees’ tax certificate;
* Delivery of an employees’ tax certificate prior to the rendering of an employees’ tax return.
The regulations also refer to an additional percentage-based penalty for non-compliance. This is a 10% penalty, which may be imposed in addition to the fixed amount penalty, for the following misdemeanors:
* Failure by an employer to pay employees’ tax to Sars, or to deduct or withhold employees’ tax from remuneration paid to its employees, as and when required under the Income Tax Act; or
* Failure by a provisional taxpayer to pay provisional tax, as and when required under the Act.
Circumstances in which the penalties may be remitted are also set out in the new regulations, and are notably limited. Penalties may be remitted for the first incidence of non-compliance, and also for an incidence of non-compliance which is in existence for less than seven days.
Other than that, Sars will give consideration to ‘exceptional circumstances”. It will be interesting to see how widely some of these specified exceptional circumstances will be interpreted in practice:
* A natural or man-made disaster;
* A civil disturbance or disruption in services;
* A serious illness or accident;
* Serious emotional or mental distress;
* Various acts perpetrated by Sars, including capturing errors and processing delays;
* Serious financial hardship; or
* Any other circumstance of analogous seriousness.
Taxpayers may have been lulled into a sense of complacency by the previous penalty regime, but if you’ve been resting upon your laurels with regard to your tax compliance, now is the time to get set, ready and on your marks, for keeping up to date, from this day forward.